HNWI Population and WealthContract Significantly 22008 in Review: Financial MarketCrisis Culminates in GlobalEconomic Downturn 7HNWIs Sought Refuge in Cash,Fixed Income and DomesticInvestments in 2008 13World’s HNWIs Scale Back on TheirInvestments of Passion AmidEconomic Uncertainty and Rising Costs 17Spotlight: Optimizing Client-Advisor-Firm Dynamics is Key as WealthManagement Firms Tackle Crisis Fallout 20Wealth Management Firms Face a New Industry Reality as Crisis Tests Client Confidence and Long-Standing Business Models 20Client Retention and Attrition Are Complex Dynamics 22Enabling Advisors Is Key to Delivering on Business Goals 25Firms Can Act to Rebuild ShakenInvestor Confidence Through MoreHolistic Risk Management 27The Way Forward 30Appendix A: Methodology 34Appendix B:Select Country Breakdown 35
World Wealth ReportTO OUR READERS,Capgemini and Merrill Lynch Global Wealth Management are pleased to present the 2009World Wealth Report. Our annual report, now in its 13th year, was initiated as our two firms began collaborating toanalyze the macroeconomic factors that drive wealth creation, and better understand the key trends that affect HighNet Worth Individuals (HNWIs) around the globe.2008 ushered in an unprecedented global downturn that originated in 2007. What started as a financial crisis soonexpanded into the larger economy, affecting mature and emerging markets alike. World equity markets lost a decadeof gains, and volatility reached record levels. Our 2008 findings show HNWIs began to lose trust in the markets, regulators,and, in some cases, their financial advisory firms. They also extended their allocations to safer investments—a trend thathad its inception a year earlier. As a result, our research shows, cash and fixed-income instruments now make up 50% ofHNWIs’ portfolios overall, and many HNWIs have retreated to familiar domestic markets.Restoring trust and confidence in the markets and the industry are resounding themes as we move forward. OurSpotlight identifies the trends and forces driving HNWI client behavior and focuses on specific opportunities that wealthmanagement firms and Advisors can pursue directly to help craft mutually value-creating relationships moving forwardinto the future.We are pleased to present this year’s Report, and hope you find continued value in its insights.Dan Sontag Bertrand LavayssièrePresident Managing DirectorGlobal Wealth Management Global Financial ServicesMerrill Lynch & Co., Inc. Capgemini
2 World Wealth Report 2009 State of the World’s Wealth HNWI POPULATION AND WEALTH CONTRACT SIGNIFICANTLY • t the end of 2008, the world’s population of high net worth individuals (HNWIs1) was down 14.9% from the year A before, while their wealth had dropped 19.5%. The unprecedented declines wiped out two robust years of growth in 2006 and 2007, reducing both the HNWI population and its wealth to below levels seen at the close of 2005. • Ultra-HNWIs2 suffered more extensive losses in financial wealth than the HNWI population as a whole. The Ultra-HNWI population fell 24.6%, as the group’s wealth dropped 23.9%, pushing many down into the ‘mid-tier millionaire’3 pool. • he global HNWI population is still concentrated, but the ranks are shifting. The U.S., Japan and Germany T together accounted for 54.0% of the world’s HNWI population in 2008, up very slightly from 53.3% in 2007. China’s HNWI population surpassed that of the U.K. to become the fourth largest in the world. Hong Kong’s HNWI population shrank the most in percentage terms (down 61.3%). • NWI wealth is forecast to start growing again as the global economy recovers. By 2013, we forecast global H HNWI financial wealth to recover to $48.5 trillion, after advancing at a sustained annual rate of 8.1%. By 2013, we expect Asia-Pacific to overtake North America as the largest region for HNWI financial wealth.HNWI Population and Wealth Shrink below 2005 LevelsAt the end of 2008, the world’s population of HNWIs was • n Europe, the HNWI population decline varied widely by Idown 14.9% from the year before (see Figure 1) to 8.6 million, country. For example, the number of HNWIs shrank 26.3%and their wealth had dropped 19.5% (see Figure 2) to $32.8 in the U.K., but just 12.6% in France and only 2.7% intrillion. The declines were unprecedented, and wiped out two Germany, which avoided a steep contraction in part becauserobust years of growth in 2006 and 2007. HNWIs there were more heavily invested in conservative asset classes than those in other countries.As a result, the world’s HNWI population and its wealth • Japan, which accounts for more than 50% of the HNWIs ended 2008 below levels seen at the close of 2005. Annual in the Asia-Pacific region, suffered a relatively mild HNWIHNWI population growth had been a robust 7.2% from decline of 9.9%, but others in the region suffered greater2005 to 2007, before reversing in 2008. The same trend was losses, including Hong Kong (-61.3%) and India (-31.6%).evident in HNWI financial wealth, which grew 10.4% per year The apparent resilience of Japan, however, stemmed largelyin 2005-07, before the steep contraction. from the fact that the expansion of the HNWI populationThe most significant declines in the HNWI population in 2008 there had already been capped by the 2007 slowdown inoccurred in the three largest regions: North America (-19.0%), macroeconomic growth and a weakening stock marketEurope (-14.4%) and Asia-Pacific (-14.2%). But behind the (market capitalization was down 11.1% in 2007).aggregate numbers lie some interesting developments in the The contraction in the overall HNWI population wasHNWI populations of those regions: exacerbated by the steeper-than-average decline (globally• he number of HNWIs in the U.S. fell 18.5% in 2008, but the U.S. T and regionally) in the number of Ultra-HNWIs. A decline in remains the single largest home to HNWIs, with its 2.5 million Ultra-HNWI numbers has a disproportionate effect on overall HNWIs accounting for 28.7% of the global HNWI population. HNWI wealth, because so much wealth is concentrated at their1 HNWIs are defined as those having investable assets of US$1 million or more, excluding 3 Mid-tier millionaires are HNWI having US$5 million to US$30 million primary residence, collectibles, consumables, and consumer durables.2 Ultra-HNWIs are defined as those having investable assets of US$30 million or more, excluding primary residence, collectibles, consumables, and consumer durables.
World Wealth Report 2009 3Figure 1. HNWI Population, 2005 – 2008 (by Region) HNWI Population, 2005 – 2008 (by Region)(In Million)CAGR 2005-2007 7.2% Annual Growth 2007-2008 -14.9% 8.8 9.5 10.1 8.6 0.1 10 0.1 0.4 0.3 0.4 0.1 0.3 0.4 0.1 0.3 0.4 8 2.8 0.4 2.6 % Change Total HNWI Population 2.4 2007-2008Number of 2.4 6 Africa -8.3% HNWIsWorldwide 3.1 Middle East -5.9% 2.9(in Million) 2.8 4 2.6 Latin America -0.7% Asia-Pacific -14.2% 2 3.2 3.3 Europe -14.4% 2.9 2.7 North America -19.0% 0 2005 2006 2007 2008Note: igh Net Worth Individuals (HNWIs) have at least US$1 million in investable assets, excluding primary H residence, collectibles, consumables, and consumer durables. Ultra-High Net Worth Individuals (Ultra-HNWIs) hold at least US$30 million in investable assets, excluding primary residence, collectibles, consumables, and consumer durables.Figure 2. HNWI Wealth Distribution, 2005 – 2008 (by Region) HNWI Wealth Distribution, 2005 – 2008 (by Region)(US$ Trillion)CAGR 2005-2007 10.4% Annual Growth 2007-2008 -19.5% US$33.4 US$37.2 US$40.7 US$32.8 1.0 1.7 40 0.9 1.4 35 0. 8 6.2 1.3 0.8 5.1 1.4 30 4.2 5.8 % Change Total HNWI Wealth, 9.5 8.4 Global 25 2007-2008 7.6 HNWI Africa -18.7% 20 7.4 Wealth (in US$ 10.1 10.7* Middle East -16.2% Trillion) 15 9.4 8.3 Latin America -6.0% 10 Asia-Pacific -22.3% 10.2 11.3 11.7 5 9.1 Europe -21.9% North America -22.8% 0 2005 2006 2007 2008*The 2007 number for Europe was restated from 10.6 to 10.710.7 as a result of updated data becoming available.*The 2007 number for Europe was restated from 10.6 to as a result of updated data becoming available.Source: Capgemini Lorenz curve analysis, 2009Source: Capgemini Lorenz curve analysis, 2009
4 World Wealth Report 2009level (each has investable assets of at least $30 million). At addition, HNWIs in Latin America tend to have relativelythe end of 2008, Ultra-HNWIs accounted for 34.7% of global conservative asset allocations, favoring fixed income.HNWI wealth, but only 0.9% of the total HNWI population. Global HNWI Population is StillThe sharp decline in the number of Ultra-HNWIs globally Concentrated, but the Ranks are(-24.6%) largely resulted from that group’s partiality for more Shiftingaggressive products, which tend to deliver greater-than-average The U.S., Japan and Germany together accounted for 54.0% ofreturns in good times, but delivered hefty losses in 2008. the world’s HNWI population in 2008, up very slightly fromThose losses helped push Ultra-HNWI wealth down 23.9% 53.3% in 2007 (see Figure 4), despite the substantial loss of wealthin 2008, and pushed a large number of Ultra-HNWIs down by HNWIs in those countries, particularly the United States.into the ‘mid-tier millionaire’ bracket. North America still For example:accounted for the largest concentration of Ultra-HNWIs(30.6k) in 2008 (see Figure 3), though that was down sharply • hina’s HNWI population surpassed that of the U.K. to Cfrom 41.2k in 2007. Regionally, Latin America retained the become the fourth largest in the world in 2008 (364k HNWIs),largest percentage of Ultra-HNWIs relative to the overall HNWI after having exceeded France in 2007. In 2008, despitepopulation (2.4%)—which is far higher than the global steep market capitalization losses, the closed nature ofaverage of 0.9%. China’s markets combined with robust macroeconomic growth to help China avoid some of the steep losses feltIn terms of overall HNWI financial wealth, the three largest elsewhere.regions suffered the heaviest losses in 2008, but Latin • Brazil surpassed Australia and Spain to reach 10th place America—the fourth largest—suffered to a lesser degree among HNWI populations globally (131k HNWIs).(-6.0%). HNWIs in Brazil, the largest country by HNWIfinancial wealth in the region, saw their wealth decline by It is also striking to note how the financial crisis impacted8.4% in 2008, far less than the global average. However, HNWIs differently in different types of economies. Forthe losses were even smaller for HNWIs in neighboring example:countries, such as Mexico and Colombia, where equity- • Hong Kong’s HNWI population took by far the largest hit in market declines were smaller, since selling was not as percentage terms, with a 61.3% drop to 37k. Hong Kong isextensive as in Brazil during the second-half of 2008. In unique in that it is a developing economy with an extremelyFigure 3. Geographic Distribution of HNWIs and Ultra-HNWIs, 2008 (by Region)Figure 3. Geographic Distribution of HNWIs and Ultra-HNWIs, 2008(by Region) 100 10 8.6 78.0 0.1 1.8 80 Ultra-HNWIs as % 0.4 8 3.5 0.4 of HNWIs, 2008 9.8 2.4 60 Africa 1.9%Number of 14.3 Number of 6 HNWIs Ultra-HNWIs Middle East 0.9%Worldwide Worldwide(in Million) 2.6 18.0 40 (in Thousand) 4 Latin America 2.4% Asia-Pacific 0.6% 2 20 2.7 30.6 Europe 0.7% North America 1.1% 0 0 2008 HNWI 2008 Ultra-HNWISource: Capgemini Lorenz Curve Analysis, 2009Source: Capgemini Lorenz curve analysis, 2009
World Wealth Report 2009 5 high market-capitalization-to-nominal-GDP ratio (5.76). HNWI Wealth is Forecast to Resume That ratio indicates Hong Kong is particularly vulnerable to Growth as Global Economy Recovers large market capitalization declines like the one experienced We forecast HNWI financial wealth will grow to $48.5 trillion in 2008 (-49.9%). By contrast, the ratio is 1.49 in Singapore, by 2013, advancing at an annualized rate of 8.1% (see Figure and just 0.83 in the U.S. Furthermore, Hong Kong has a 5). This growth will be driven by the recovery in asset prices very large proportion of its HNWIs in the $1m-$5m wealth as the global economy and financial system right themselves. band, and many of these HNWIs dropped below the $1m Also, the 2008 flight-to-safety imperative is expected to ease, threshold in 2008 due to market losses. encouraging HNWIs to return to higher-risk/higher-return• India’s HNWI population shrank 31.6% to 84k, the second assets, and away from capital-preservation instruments, as largest decline in the world, after posting the fastest rate of conditions improve. growth (up 22.7%) in 2007. India, still an emerging economy, We expect North America and Asia-Pacific to lead the growth suffered declining global demand for its goods and services in HNWI financial wealth, and predict Asia-Pacific will actually and a hefty drop in market capitalization (64.1%) in 2008. surpass North America by 2013. Growth in these regions will be• ussia’s HNWI population declined 28.5% to 97k, the R driven by increased U.S. consumer expenditure as well as new- seventh largest per-country drop in 2008, after growing at found autonomy for the Chinese economy, which is already the tenth fastest rate (14.4%) in 2007. Russia’s economy experiencing increased consumer demand. decelerated rapidly, in line with the steep decline in global demand for oil and gas. Compounding the problem was the Latin America is poised to grow again when the U.S. and sharp fall in equity markets—down 71.7%, and the largest Asian economies start to pick up, as it has the commodities drop globally. and manufacturing capability that will be needed during the• he U.K. experienced a 26.3% drop in its HNWI population T return to growth. Europe’s economic recovery is likely to lag, in 2008, to 362k. A mature economy, heavily reliant on as several major countries there continue to face difficulties. financial services, the U.K. was particularly hard-hit by In the Middle East, oil is expected to be a less dependable falling equity and real estate values. driver of wealth in the future, so growth there is likely to be slower than it has been in the past.Figure 4. HNWI Population by Country, 2008 HNWI Population by Country, 2008(in Thousand) Thousands) 4000 3,019* 3000 2008 Number 2,460 of 2007 HNWIs 2000 (in 1,517* 1,366thousand) 1000 833* 810 413* 364 491* 362 396* 346 281* 213 212*185 207* 164 169* 129 143 131 161*127 0 United Japan Germany China P. R. United France Canada Switzerland Italy Brazil Australia Spain States Kingdom Position 1 2 3 5 4 6 7 9 8 12 10 11 in 2007*2007 data has been revised*2007 data has been revised as a resultof updated data becoming availableSource: Capgemini Lorenz curve analysis, 2009Source: Capgemini Lorenz curve analysis, 2009
6 World Wealth Report 2009Our global forecasts assume continued difficulties for the Notably, HNWI wealth grew at a strong annualized rate ofglobal economy in 2009. We expect some initial signs of close to 9% in 2002-07—the recovery years following thegrowth in selected countries, which could pick up steam from bursting of the technology bubble. While the tech downturn2010, but protracted weakness in the global economic and/ and the most recent financial crisis are not identical formsor financial systems could force a downward revision in our of disruption, we nevertheless expect the recovery in HNWIforecast numbers. wealth to be similarly robust this time around, as the business cycle starts to trend back up.Figure 5. HNWI Financial Wealth Forecast, 2006 – 2013F (by Region)Figure 5. (by Region)(US$ Trillion)(US$ Trillion) 50 US$ 48.5 1.0 1.9 US$ 40.7 1.0 7.6 40 US$ 37.2 1.7 0.9 Annual Growth Rate 1.4 6.2 US$ 32.8 2008-2013F 0.8 5.1 1.4 13.5 Africa 4.1% Global 30HNWIs 9.5 5.8 Middle East 5.7%Wealth 8.4(in US$ Latin America 6.8%Trillion) 7.4 20 At 8.1% 11.4 Asia-Pacific 12.8% 10.1 10.7* Global CAGR Europe 6.5% 8.3 10 North America 7.0% 12.7 11.3 11.7 9.1 0 2006 2007 2008 2013*The 2007 numbers for Europe was restated from 10.6 to to 10.7 result of updated data becoming available*The 2007 number for Europe was revised from 10.6 10.7 asSource: Capgemini Lorenz curve analysis, 2009Source: Capgemini Lorenz curve analysis, 2009
World Wealth Report 2009 7 2008 in Review: Financial Market Crisis Culminates in Global Economic Downturn The run-up to the global economic crisis had, in hindsight, been 10 years in the making. Current-account • imbalances between creditor and debtor nations had widened, low yields had prompted a rampant search for returns, and the increased complexity and opacity of products had intensified systemic risk. • The U.S. financial crisis soon spilled quickly, broadly, and deeply into the real economy worldwide—damaging all the macroeconomic drivers of wealth (GDP, savings and consumption). National savings rates decreased, but so did consumer spending. The global economy is projected to post its worst performance since World War II. Most asset values, weak in 2008’s first half, plunged in the second half, turning the market-performance driver • of wealth from challenging to devastating. Global equity-market capitalization plunged nearly 50%, and global investors fled to fixed-income securities, settling for a return of their investment, not on their investment. • here is no clear consensus yet on when and how the global economy will return to growth. There are some T key issues to watch in the coming year, including the fiscal, financial and economic response of governments and financial authorities across the globe, with the U.S. and China as key players.THE ECONOMIC FALLOUT WAS TEN YEARS IN THE MAKINGAccounts are already legend of the financial crisis that began mature markets as another means of diversifying theirin 2007 and accelerated in 2008, before spreading to the global large asset bases.economy in 2008. In hindsight, several important trends b) Debtor nations spent wildly. As noted in the 2008 over the last 10 years marked the run-up to and unfolding of WWR, nations in the developed world, such as Spain,the economic crisis, and make events far more fathomable. Australia and the U.K.—and certainly the U.S.—hadThese include: demonstrated unsustainable spending patterns that resulted in large current account deficits. The U.S. con-1. urrent-account imbalances between creditor and C sumer has been the strongest single driver of global debtor nations widened over a 10-year period. demand for some time, accounting for $9.2 trillion, or a) reditor nations accumulated massive amounts C 18.6% of the world’s GDP in 2008.6 This is comparable to of reserves. After financial crises in the late-1990s, Asian the combined GDP ($10.8 trillion7) of Japan, China and and energy-rich nations started hedging against similar Germany—the next three largest economies in the world— shocks by increasing their savings, and building large bolstering the U.S. position as the leading debtor nation. current account surpluses. Much of the national savings 2. ow yields prompted a rampant search for returns. L were destined for central bank reserves, especially in China, Notably, real interest rates were driven down by strong where foreign currency reserves rose from $0.4 trillion demand from creditor nations and by government in 2003 to almost $2 trillion in 2008.4 These funds were intervention in the early 2000s. This encouraged investors invested primarily in low-risk assets, mainly U.S. Treasury to search for better yields—often in the form of excessive securities. For example, foreign investors (private and leverage and in novel product alternatives like complex official) owned nearly 60% of all U.S. Treasuries bonds structured products such as mortgage-backed securities as of June 20075, up from less than 20% in 1994. (MBS) and collateralized debt obligations (CDOs). Sovereign Wealth Funds, such as those of Singapore, Abu 3. he increased complexity and opacity of many T Dhabi, and China similarly invested in the U.S. and other products intensified systemic risk. Some of the4 Economist Intelligence Unit, Country Data for China, March 2009 6 Economist Intelligence Unit, Country Data for the US, March 20095 Financial Services Authority, The Turner Review: A Regulatory Response to the Global 7 Economist Intelligence Unit, Country Data for Japan, China and Germany, March 2009 Banking Crisis (London, U.K. March 2009)
8 World Wealth Report 2009 products designed in recent years to meet the strong World’s GDP Slumped in 2008, demand for yield were highly complex and opaque, as Economies Proved to be More certainly compared with standard exchange-traded products. Interdependent than Many Thought Moreover, it took the rescue of Bear Stearns, the collapse of The global economy is projected to post its worst performance Lehman, and the crisis at AIG to show the degree to which since World War II. There had been a general consensus the market for products like credit default swaps (CDS) that certain emerging economies, such as the BRIC nations relied on a complex and interrelated web of counterparties, (Brazil, Russia, India, China), had strengthened to the point which became deeply threatened by the changing environ- that they no longer relied on mature economies for growth. ment for the underlying products. This so-called “decoupling” would theoretically insulate those economies from mature-market downturns as well. However,THE U.S. FINANCIAL CRISIS SPILLED the decoupling theory was severely tested in 2008, as emergingQUICKLY, BROADLY, AND DEEPLY INTO markets followed in lock-step with the global contraction inTHE REAL ECONOMY WORLDWIDE GDP (although their declines were not as quick or as steep asThe financial crisis that started in 2007 and continued into those in mature markets—see Figure 6).2008 rapidly escalated and expanded into the general economy World GDP did manage to produce some growth in 2008 (2.0%),in mature markets, and culminated in a steep, global economic but it was down from 3.9% in 2007 and 4.0% in 2006. GDP indownturn, particularly in the last quarter of 2008. Export- G7 economies deteriorated progressively as the crisis unfolded,driven countries were hit hardest, particularly in Asia, as global and ended the year showing growth of just 0.6%. BRIC nationsdemand dried up. Many other countries and markets, especially continued to outpace many economies, led by China, despite thein the developing world, were struck by a sharp drop in foreign steep slowdown in the fourth quarter. Although the crisis spreadinvestment, as well as an overall drop in demand. All in all, worldwide, some regions posted relatively strong GDP growththe macroeconomic drivers of wealth (gross domestic product for 2008, especially Latin America (4.0%), and the Middle East(GDP), savings and consumption) were all hit hard. and North Africa (5.8%)8, but that only suggests these regions had yet to experience the full extent of the economic fallout.Figure 6. Real GDP Growth Rates, 2007-2009F Figure 6. Real GDP Growth Rates, 2007-2009F(%) (%) 2007 15 13.0 2008 2009F 10 9.0 9.1 8.1 7.8 6.7 5.6 6.0 6.0 5.7 4.8 5.0 5.1 5 3.0 3.3 2.7 2.5 2.4 2.0 2.1 1.1 1.3 1.2 1.4Percent 0.5 0.7 0.7Change 0 (%) -0.4 -0.7 -1.5 -2.2 -3.2 -3.0 -3.0 -5 -4.0 -4.4 -5.3 -6.4 -10 -8.8 United Canada Germany United France Russia Poland Japan Singapore China India Brazil Mexico States Kingdom -15 North Western Europe Eastern Asia-Pacific Latin America Europe AmericaSource: Economist Intelligence Unit – April 2009. Real GDP variation over previous year Source: Economist Intelligence Unit – April 2009. Real GDP variation over previous year.8 Economist Intelligence Unit, Regional Data, March 2009. Capgemini Analysis
World Wealth Report 2009 9National Savings Decreased in 2008, MOST ASSET VALUES, WEAKand So Did Personal Spending IN 2008’S FIRST HALF, PLUNGEDNational savings9 decreased worldwide in 2008, negatively IN THE SECOND HALFimpacting wealth, as there were fewer funds available for Market performance—another key driver of wealth—turned fromfuture investments. The ratio of combined national savings to challenging to devastating in 2008. Most key assets (equities, fixedGDP fell to 22.6% globally, from 23.1% in 2007, and to 16.4% income, real estate and alternative investments) experienced ain G7 countries, down from 17.2%.10 mediocre first-half at best. Then they were hit by a massive sell-It is customary for a decreased level of national savings to off, particularly in the fourth quarter, as investors fled to safecoincide with an increase in total consumption (private havens like cash, gold, and U.S. Treasuries. Many commodities andand public spending). Global government consumption did currencies—secondary drivers of wealth—also lost value in 2008.increase in 2008—by $0.3 trillion worldwide 11—partly driven Notable market events during the year included the following:by widespread government outlays on financial bailouts and • lobal equity-market capitalization plummeted nearly Geconomic stimulus packages. 50%, dropping below 1999 levels (see Figure 7). The globalHowever, 2008 saw a global slowdown in consumer spending, drop in equity-market capitalization was perhaps the mostas eroded consumer confidence and scarce credit prompted salient example of the severity of the crisis, as uncertaintywidespread thrift. The most salient example of this trend and fear pervaded investor sentiment in every region. In thewas in the U.S., where consumer spending grew just 0.2% in first half of the year, most equity markets lost value, though2008, after a gain of 2.8% in 2007—while the fourth-quarter there were some notable exceptions. In Latin America, forpersonal savings rate jumped to the highest rate since the example, the MSCI index rose 8.0%14, due mainly to thethird quarter of 2001 (3.2% of disposable income12). In Europe, commodities boom. However, during the second half, andpersonal spending grew 1.0% in 2008, down from 2.2% in especially after mid-September, equity markets sank across the2007. 13 The sudden end to rampant spending had a huge world—down 42.9% in the Americas, 53.5% in Asia Pacific,impact on the world’s GDP—especially given the U.S. and 51.0% in EMEA (Europe, Middle East, and Africa)—for aconsumer’s central role in fueling global demand. global loss of market capitalization of more than $30 trillion. Notably, some of the countries with the largest gains in 2007Figure 7. Market Capitalization by Region, USD TrillionFigure 7. Market Capitalization by Region, 1990 - 2008(1990 - 2008) CAGR (90-99) CAGR (99-02) CAGR (02-07) CAGR (07-08) 16.4% -13.2% 22.7% -48.6% 80 Americas: 20.3% Americas: -12.9% Americas: 15.3% Americas: -42.9% 63.4 EMEA: 19.7% EMEA: -14.1% EMEA: 24.4% EMEA: -51.0% 60 APAC: 7.7% APAC: -12.9% APAC: 34.9% APAC: -53.5% $USTrillion 40 35.0 32.6 25.4 22.8 Asia Pacific 20 Europe / Africa / Middle East 8.9 Americas 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source:Source: World Federation of Exchanges, April 2009. Federation of Exchanges, April 20099 National Savings = GDP - (Private Consumption + Government Consumption) 13 European Commission. European Commission Interim Forecast, Jan 200910 Economist Intelligence Unit, Regional Data, March 2009. Capgemini Analysis 14 MSCI Barra, Equity Indexes for select regions, (http://www.mscibarra.com/products/11 Ibid. indices/index.jsp)12 U.S. Bureau of Economic Analysis, National Income and Product Accounts Tables: Comparison of Personal Saving in the NIPAs with Personal Saving in the FFAs, March 2009
10 World Wealth Report 2009 posted the worst losses in 2008. China’s market cap was weighted (i.e., more diversified), we see that when the tech down 60.3% after a 291% increase the year before, and India bubble burst, the more diversified portfolio lost 37% of was down 64.1% after rising 118.4% in 2007.15 its value, while the less diversified portfolio lost 48%. By• quity-market volatility dwarfed levels seen in E contrast, the two indexes performed similarly in the late- recent crises. The rapid meltdown in equities occurred amid 2008 sell-off, and the more diversified index actually lost record levels of volatility. The CBOE Volatility Index, which more value (41% vs. 38%16). many wryly dub “the Fear Index”, surged in mid-September • lobal investors fled to fixed-income securities, G 2008 to the same levels seen during the stock market crash looking for a return of their investment, not on their of October 1987. The daily volatility of the Dow Jones investment. U.S. Treasuries outperformed every other fixed- Global Index (see Figure 8) did the same, and displayed income security in 2008, increasing 13.9% on a total-return levels comparable to those seen in the Great Depression basis, as demand surged in a flight to quality (see Figure 9). of the 1930s. Those volatility levels dwarfed anything The flight-to-safety was so intense that yields of short-term seen in the last 10 years, including the aftermath of the U.S. Treasuries actually dipped below zero in mid-December, Asian financial crisis, the collapse of Long-Term Capital when investors were primarily concerned with preserving Management, the bursting of the Tech Bubble, and the their capital. Total returns on investment-grade corporate September 11th terrorist attacks in the U.S. bonds were down nearly 7%17, while corporate junk bonds• aith in equity-market diversification proved to be F fell 23.5% in the US and 28.2% in Europe, their worst year in misplaced. Traditional attempts at equity diversification record, according to the ML US and Euro High Yield indexes. offered no respite, even to savvy investors, as the second- • Many commodities saw a boom-to-bust cycle. half 2008 sell-off afflicted most regions, types of company, Commodities rallied in the first half of 2008, when crude oil and industries. Data confirm that a more diversified equity prices neared $150 per barrel, and gold reached $1,000 per portfolio, which would have helped investors in previous troy-ounce. But, particularly after the collapse of Lehman crises, would not have protected them in the last quarter of Brothers, commodity prices sank, as investors started to 2008. In comparing two versions of the MSCI World Index, liquidate positions in a shift to safer assets. The Dow Jones- one weighted by market capitalization and the other equally AIG Commodities Benchmark plunged 55%18 from its peak inFigure 8. Daily Volatility of DJ World Index 1996 - 2008)Figure 8. Daily Volatility of DJ World Index, (1996 - 2008 3.0 Q4 2008 2.5 2.0 Daily Tech Bubble Volatility of DJ 1.5 Russian Crisis World September 11, 2001Index (%) 1.0 0.5 0.0 11/1996 04/1999 08/2001 01/2004 06/2006 10/2008Source: Dow Jones World (W1) Index – Daily close values from January 1st, 1993 to December 31st, 2008. Capgemini analysis. analysis Source: Jones World (W1) Index – Daily close values from January 1st, 1993 to December 31st, 2008; Capgemini15 World Federation of Exchanges, 2007-2008 market capitalization statistics.(http://www. 17 Rappaport and Serena Ng, “Bonds on Leading Edge of Crisis; ‘Not a Single Place to Liz world-exchanges.org/statistics) Hide’”, Wall Street Journal , Jan. 2, 200916 MSCI Barra. Equity Indexes for select regions. (http://www.mscibarra.com/products/ 18 Dow Jones. Historical Dow Jones – AIG commodities benchmark. (www.djindexes.com) indices/index.jsp). Capgemini Analysis.
World Wealth Report 2009 11 early-July of 147.6 points to 65.8 points in early-December, REIT benchmark index declined steadily, to around 1,000 wiping out all the gains accumulated since 2002. Gold (base value) in July 2008, where it held until mid-September proved to be the exception, as it benefited from its attrac- 2008. Thereafter, however, a heavy sell-off pushed the index tiveness as a safe-haven holding, and prices posted a gain of down more than 50% in a matter of weeks. The index had 5.8%19 for the year. Moreover, although jewelry is still the bottomed at 474.5 points by the end of October 2008, and predominant use of gold, uses of gold as an alternative to closed the year at 621.8 points.25 cash soared in 2008: Bar hoarding jumped by 60%, official • ew hedge funds escaped the losses, even with F 20 coins by 44%, and Exchange Traded Funds rose 27%. alternative strategies. Hedge funds had the worst• eal Estate losses intensified toward year-end. Real R performance in their history in 2008, belying the theory estate was another case in which a clear but steady down- that hedge funds naturally outperform in rough markets. trend in the first half of the year was dwarfed by sharp losses The fact that too many funds were holding a very similar in the second. Housing prices fell in many nations in 2008, asset base proved lethal once the equities sell-off accelerated making it one of the worst real estate years on record.21 at the year’s end. According to the Credit Suisse/Tremont Declines were evident worldwide, including Ireland (-11.8%), Hedge Fund Index, leading hedge funds globally returned the UK (-21.3%), Hong Kong (-13.4%), South Africa (-7.8%) a loss of 16.7%. Moreover, hedge funds faced liquidity and Dubai (-11.0%), where residential unit sales were 45% constraints, with hard-to-trade investments accounting for lower in the fourth quarter than in the third.22 Luxury up to 20% of total portfolios of approximately $400 billion.26 residential real estate prices also fell 25% on average glob- Assets managed by global hedge funds tumbled 25% to ally.23 The U.S. housing market continued to deteriorate, $1.5 trillion from nearly $2 trillion at the start of 2008. with a 19.5% loss for the year.24 However, real estate prices Nevertheless, some skilled managers were able to generate did remain constant or increase slightly in some countries, alpha despite adverse market conditions. The most successful including Japan, China and Germany. strategies were Managed Futures, with an 18.3% cumulative REIT prices also ended the year sharply lower. After peaking return for the year, as well as Dedicated Short, which at 1,574.9 at the end of February 2007, the Dow Jones Global returned 14.9%.27Figure 9. US Treasury Index vs. US, Europe High Yield Index 2008 – Rebased Figure 9. US Treasury Index Vs. US, Europe High Yield Index 2008 – Rebased(1/2/2008=100) (1/2/2008=100) 120 US Treasury 100 Rebased Value (%) 80 US High Yield EU High Yield 60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecSource: Merrill Lynch. US Treasury Master, US High Yield Master, and Europe High Yield Master daily values 2008 Source: Merrill Lynch. US Treasury Master, US High Yield Master, and Europe High Yield Master daily values 2008.19 Carolyn Cui, “Commodities: Great, Then Ugly”, Wall Street Journal , Jan. 2, 2009 25 Historical Dow Jones Wilshire REIT Index Values, www.djindexes.com20 World Gold Council and GFMS Ltd. Identifiable gold demand (tons), 2009 26 regory Zuckerman and Jenny Strasburg. “For Many Hedge Funds, No Escape”, Wall G21 Anton Troianovski, “Real-Estate Markets Still Plumb for Bottom”, Wall Street Journal, Jan 2, 2009 Street Journal , January 2, 200922 lobal Property Guide Time Series Database, 2009 (Ireland, Hong Kong, UK and South G 27 redit Suisse Tremont Hedge Index. One for the History Books: Hedge Fund Performance C Africa). Merrill Lynch GCC Quarterly Report, Feb 2009 for Dubai in 2008, Jan 26, 200923 Kay Coughlin, President CEO, Christie’s Great Estates. Interview by Capgemini, April 200924 lobal Property Guide Time Series Database, Case-Shiller House Price Index, composite G 10 cities, seasonally adjusted, March 2009
12 World Wealth Report 2009• ost currencies had a mixed year, but the U.S. dollar M global demand remains low, and global unemployment, ended higher. During the first half of 2008, currencies particularly in Asia, continues to rise. such as the euro and the Brazilian real appreciated against • Interdependence of the global economy still prevails. the U.S. dollar (10.4% and 7.1%, respectively), while others The road to recovery will require close cooperation among remained stable (British pound, -0.1%), and a few lost value countries, given the enduring interdependence among 28 (Canadian dollar, -3.2% ). However, this trend changed global economies. For example, creditor nations may be able drastically in the second half of the year, after commodities to sustain themselves on their surpluses in the short and prices sank, and the global economic crisis worsened mid-term, but they will eventually need the force of fueling tangibly. Two significant second-half devaluations against economies, including the important private-consumption the U.S. dollar were the Brazilian real (-46.2%) and the British component, to help resuscitate global and local demand in pound (-38.0%). In late-2008, the U.S. dollar and the their economies, and reduce global imbalances. Similarly, Japanese yen both surged, fueled in part by widespread while in the past the BRIC nations were viewed together as purchases from investors unwinding currency carry trades. decoupled engines of global GDP growth, Brazil and India In the process, the yen appreciated 14.9% against the will likely support global growth, rather than fuel it, in the dollar.29 The dollar also attracted buyers in the second half of current environment, and Russia is expected to require a 2008 when the U.S. started to look like a stronger economy longer period of repair before it can regain its pre-crisis than many of its trading partners. growth levels. • A recovery of the global banking system is critical. WATCHING THE ECONOMIC HORIZON One of the fundamental drivers for economic recovery isCurrent conditions suggest any recovery will be slow, as the credit availability—which is heavily dependent on banks’crisis continues to permeate world economies. There is no balance sheets. Although some key indicators of theclear consensus yet on when and how the global economy banking system, such as the TED33 spread, have improvedwill recover, but there are certainly some key factors required: considerably, they are still at worse levels than before the crisis. Furthermore, it is not clear how much time• he U.S. is crucial for global economic recovery. The T it will take banks to complete the shedding of toxic majority of economists agree the U.S. recession will end in the assets, but it will be difficult for them to extend third or fourth quarter of 2009.30 However, while there have significantly more credit to the private sector until been some initial signs of growth following government they do. And without credit availability, it is much more intervention, the outlook for longer-term growth will difficult for the private sector to resume taking the risks depend largely on private-sector activity. Moreover, U.S. necessary for a sustained global recovery, such as increasing private consumption is imperative for a sustained, long-term employment, business investments, and taking up loans. global recovery as the U.S. to date has fueled approximately • Global fiscal and economic policies, and politics, will one-fifth of world GDP—more than any other economy by shape the road to recovery. Financial authorities and far. Economists expect unemployment to increase through- regulators from around the world quickly harmonized their out the rest of the year and only begin to dissipate in 2010. calls for a global response to a global crisis. The Group-of-• China is an important engine for growth. China has Twenty (G-20) Finance Ministers and Central Bankers pledged shown some increased signs of growth, mainly due to its in April 2009 to act to restore confidence, growth, and jobs, domestic stimulus spending (a $585 billion package repair financial systems to restore lending, and strengthen announced in November 2008). China’s stock market rose financial regulation to rebuild trust.34 However, it remains 8.4% during the first few months of 2009, outperforming all to be seen how governments will respond to politically G7 economies.31 However, the private sector seems to have sensitive issues (e.g., government spending, taxation, had a more significant contribution than in the U.S., with a protectionism, regulation) that will arise in driving rise in car and housing sales suggesting increased confidence growth. A meaningful recovery of the global financial in the domestic Chinese economy.32 These positive signs are system is not expected before 2010, which underscores also important for the global economy, as China’s renewed the importance of governments, regulatory agencies and appetite for products, particularly raw materials, would help financial institutions getting fiscal, monetary and other economies. However, these signs should be treated macroeconomic policies right. with caution, since Chinese exports are still declining,28 Ozforex. Historical data for select currencies against the U.S. dollar. (www.ozforex.com) 33 ED Spread = Difference between yields on Treasury bills and those on dollar T29 Ibid denominated deposits of major commercial banks outside the U.S. If the spread widens, it30 Phil Izzo, “Economists See a Rebound in September”, Wall Street Journal , April 9, 2009 signals investor concerns on the financial system.31 MSCI equity indexes for select China and G7 countries from Jan. 1, 2009 to April 10, 2009 34 roup of Twenty Finance Ministers and Central Bank Governors, The Global Plan for G32 ndrew Batson, “China Turns a Corner as Spending Takes Hold”, Wall Street Journal , April A Recovery and Reform, G20.org, statement released April 2, 2009 11, 2009
World Wealth Report 2009 13 HNWIs Sought Refuge in Cash, Fixed Income and Domestic Investments in 2008 HNWIs reduced their exposure to equities across the globe in 2008, but allocated more to fixed-income • instruments. By year-end 2008, equities accounted for 25% of total global HNWI financial assets, down from 33% a year earlier, and fixed-income accounted for 29%, up from 27% a year earlier. • NWIs kept far more cash/deposits in 2008—of global HNWI financial assets, 21% was in cash-based H holdings at the end of 2008, up 7 percentage points from pre-crisis levels in 2006. • NWIs also had slightly more of their financial assets allocated to real estate holdings, which rose to 18% H of the total global HNWI portfolio from 14% in 2007. They also sought safety in home-region and domestic investments, which increased significantly in all regions in 2008—and by a global average of 6.8%, continuing a trend that began in 2006. • NWIs are expected to remain fairly conservative investors in the short term, with capital preservation being H a priority over the pursuit of high returns. Looking toward 2010, though, the profile of HNWI portfolios is likely to shift as economic conditions improve, instigating a tentative return to equities and alternative investments as HNWIs regain their appetite for risk.HNWIs Reduced Exposure to Equities As global stock markets sold off in 2008, HNWIs joined thosein 2008 amid Shift to Safety, Simplicity retreating from equity investments. Accordingly, the propor- tion of wealth allocated to equities by HNWIs globally droppedHNWIs increased the proportion of their assets held in safer, by 8 percentage points (to 25%).simpler, more tangible investments in 2008, and reduced theirrelative holdings of equities and alternative investments (see North American HNWIs also significantly reduced theirFigure 10). Breakdown of HNWI Financial Assets, 2006 to 2008, 2010F to equities—an asset class they have long favored—Figure 10. exposure(%)Figure 10. Breakdown of HNWI Financial Assets, 2006 - 2010F(%) 100 10% 9% 7% 7% 18% 15% 14% 24% 75 17% 20% Alternative Investmentsa 21% 14% Real Estateb(%) 50 Cash / Deposits 27% 30% 21% 29% Fixed Income Equities 25 31% 33% 28% 25% 0 2006 2007 2008 2010Fa ncludes: Structured products, hedge funds, derivatives, foreign currency, commodities, private equity, venture capital Ib Includes: Commercial Real Estate, REITs, Residential Real Estate (excluding primary residence), Undeveloped Property, Farmland and OtherSource: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009.
14 World Wealth Report 2009to 34%, from 43% in 2007, but that was still 9 percentage in the second half of 2008, happy to settle for a return of, notpoints above the global average allocation to equities. on, their capital.Elsewhere, HNWIs also scaled back on their equity holdings Latin American HNWIs allocated the highest proportionamid stock-market volatility and declines. The allotment was among regions to fixed income investments (40%), though21% in both Europe and the Middle East by the end of 2008, that was up just 1% from 2007. Their preference for fixeddown 10 percentage points from 2007 levels in each case. In income largely reflects their traditionally low risk appetite.Latin America, it was down 8 percentage points to 20%. Conversely, HNWIs in emerging/developing Asia (i.e., exclud- ing Japan) allocated a much smaller proportion (17%) of theirHNWIs, Wary of Markets and Risk, Kept overall portfolio to fixed income investments.More Cash in 2008As the global banking and financial crises worsened, and credit Real Estate, especially Residential,tightened, HNWIs became more risk-averse and wary of complex Regained some of its Appeal forproducts in 2008, with global net inflows into money market HNWIs in 2008funds exceeding $455 billion for the year.35 Ultimately, there was Real estate investments picked up again in 2008, rising toa significant increase in the amount of HNWI wealth in cash- 18% of total HNWI financial assets from 14% in 2007, whenbased holdings—an average of 21% of overall portfolios, up 7 its share had dropped by 10 percentage points from the yearpercentage points from pre-crisis levels in 2006. before. The return to real estate reflected the preference of HNWIs for tangible assets, as well as a trend toward bargain-The proportion of cash-based holdings was highest among HNWIs hunting, especially in commercial real estate and newly builtin Japan (30%), where the savings rate has been traditionally segments,36 but also in residential real estate, where prices sawhigh, and was nearly as high in the rest of Asia (26%, up 5 the worst decline on record. Inflation hedging may also havepercentage points from 2007). By contrast, HNWIs in North spurred some buying.37America—where the use of credit is a ubiquitous source of fundingand payments—held the lowest amount of cash/deposits as a Overall, residential real estate38 accounted for 45% of totalpercentage of their total portfolios (14%, up only 3 percentage HNWI real estate investments at the end of 2008. Luxurypoints). residential property values dropped in 2008 to levels last seen in 2003 and 2004, prompting some HNWIs to buy, particularlyCash-based investments held outside of the formal banking “once in a lifetime” properties.39system (e.g. held in a vault etc) totaled 19% of global HNWIcash and deposit-based investments. HNWIs across Asia The emerging regions of the Middle East and Asia-Pacific(excluding Japan) held the highest proportion of cash (excluding Japan) had the highest HNWI allocation to realoutside of an account—29%, largely reflecting the lack of estate investment (25% and 23%, respectively), and the greatestconfidence HNWIs had in the regions’ emerging-market proportion of residential real estate (54% and 58%, respectively).banking systems, which tend to be less transparent than those Both regions have experienced an exponential boom in realin more developed markets. North American HNWIs held estate investment over the last few years, but a steep drop inthe least amount of cash outside of an account, at 14% of cash end-user demand has combined with lack of available financingholdings. to fuel a rapid decline in prices, particularly in the fourth quarter of 2008.HNWIs, Seeking Safety, also Allocated Within the Middle East, the biggest change in the real estateMore Wealth to Fixed Income market has been the shift in buyer profile—from short-termHNWIs continued to allocate an increasing proportion of speculative investors back to professional investors, who focustheir investments to fixed-income investments in 2008, on cash-on-cash yield potential40 (i.e., focusing on the returnbringing the allotment to 29% of global HNWI portfolios at on invested capital, not the asset value itself). Real estate in thethe end of 2008, up 2 percentage points from 2007. Middle Eastern lynchpin of Dubai peaked in September, beforeIn fact, many HNWIs around the world were willing to eschew falling about 25% in value during the fourth quarter of 2008.41returns altogether in favor of safety. For example, HNWIs were HNWI holdings of commercial real estate accounted for 28%among the investors who bought zero-yield US Treasury bills of total HNWI real estate holdings, little changed from 29% in35 Reuters, “Money market funds big winners in 2008”, April 21, 2009, http://uk.reuters.com/ 39 Kay Coughlin, President CEO, Christie’s Great Estates. Interview by Capgemini, April 2009 article/fundsNews/idUKLNE50602X20090107 40 Colliers International, GCC Real Estate Overview Second Quarter 2009 [Online], April 21,36 Knight Frank/Citi Private Bank, The Wealth Report [Online], March 24, 2009, www. 2009, http://www.colliers-me.com/marketreports.aspx knightfrank.com/wealthreport/TheWealthReport2009.pdf 41 The Economist, “Dubai: A new world”, April 25, 2009, http://www.economist.com/finance/37 Kay Coughlin, President CEO, Christie’s Great Estates. Interview by Capgemini, April 2009 displaystory.cfm?story_id=1352789138 Not including primary residence
World Wealth Report 2009 152007. Typically, there is little correlation between commercial HNWIs in Europe and Latin America saw the largest drop inand residential real estate performance, as the key drivers of hedge fund allocations, with both regions seeing their allotmentsstrength in each market differ. However, the financial crisis drop by 16% from 2007 totals, to 18% and 32%, respectively.has impacted drivers of demand in both markets—including Commodities, meanwhile, accounted for a slightly larger shareeconomic growth, rates of unemployment, consumer spend- of the aggregate HNWI portfolio at the end of 2008—13% vs.ing and personal income, mortgage availability, consumer 10% in 2007—as flight-to-safety purchases of gold (which sawconfidence, and demographics. its eighth straight year of price increases) offset the generalLatin American HNWIs had the highest allocation in the world decline in commodities prices and HNWI investment. HNWIsto commercial real estate (31%), following the huge boom in in North America had the highest allocation to commoditycommercial real estate across the region since 2006. investments (16%), as instability in the banking system fueled the flight to safety.Farmland and undeveloped property, meanwhile, comprised15% of aggregate global HNWI real estate portfolios in 2008, Foreign currency investment comprised only 14% of overallbut that share was much higher (31%) in Latin America, where HNWI alternative investment allocations, but that proportiona significant amount of wealth has traditionally been derived was much higher among HNWIs in Japan (27%) and the restfrom agricultural businesses. of Asia (25%), as HNWIs sought to hedge the currency exposure of their asset holdings.Notably, Ultra-HNWIs held more of their real estate holdingsin commercial real estate than HNWIs did in 2008 (33% of Allocation to structured products jumped to 21% from 15% inthe total vs. 28%), while holding less in residential real estate 2008, as HNWIs pursued the type of structured vehicles with(39% vs. 45%). This is largely because Ultra-HNWIs have more provisions that protect capital (not complex, opaque structures),assets at their disposal, and tend to have broader and more and sought to capture superior returns to conventional fixed-diversified portfolios than HNWIs, allowing them to more income investments.comfortably allocate a greater proportion of their wealth toless-liquid assets. HNWIs Sought Refuge in Investments Close to HomeHNWIs continued to reduce their holdings of real estate Amid turbulence in the world economy, HNWIs retreated toinvestment trusts (REITs) in 2008. REIT investments are familiar territory in 2008, continuing a trend toward home-generally more liquid than direct property ownership, so region, and domestic investment that began in 2006. ThisHNWIs were quick to sell as soon as real-estate sentiment trend has been marked by a reduction in North Americanstarted to turn negative. Only 10% of HNWI real estate assets as a percentage of overall HNWI holdings.holdings were in REITs by the end of 2008, down from 17%in 2007, and 22% in 2006. REITs continued their steady decline North American HNWIs increased their own domestic holdings,in performance from 2007 into the first half of 2008, before though, to 81%, up 8 percentage points from pre-crisis levelsplummeting more than 50% in the second half of 2008. REIT in 2006 (see Figure 11).investment fell the most in North America—to 14% of the re- Most notably, the economies of Asia-Pacific and Latin-Americagion’s overall HNWI real-estate investments. That was down 11 sharply increased home-region investment from 2006 to 2008percentage points from 2007, but that year had seen a relatively (by 18 percentage points and 25 pts, respectively).large allocation to REITs in historical terms. Latin America has experienced an especially steep increase inHNWIs Reduced their Holdings home-region investment, rising from 20% of global investmentsof Alternative Investments in 2006, before the crisis, to 45% in 2008. This in part reflectsHNWIs also continued to reduce their holdings of alternative the significant investment opportunities (e.g., equities) withininvestments as a whole in 2008 (from 9% of the aggregate the region over those years. In addition, government-drivenportfolio to 7%). Hedge fund investments accounted for 24% fiscal incentives in Latin America, along with relatively highof alternative investments by the end of 2008, down from 31% interest rates, have encouraged HNWIs to repatriate offshorea year earlier, as the hedge fund industry as a whole posted its investments.worst-ever performance and HNWIs shifted to more traditionalinvestments vehicles.